The July contribution format income statement of Raiche Corporation appears below: If the company's sales increase by 5%, its net operating income should increase by about:

Question

The July contribution format income statement of Raiche Corporation appears below:  If the company's sales increase by 5%, its net operating income should increase by about:

Quizplus · Accepted Answer

Degree of operating leverage = Contribution margin ÷ Net operating income
= $255, 300 ÷ $38, 000 = 6.72
Percentage change in net operating income = Degree of operating leverage × Percentage change in sales
= 6.72 × 5% = 33.59%

The July Contribution Format Income Statement of Raiche Corporation Appears